more bad us economic news ahead

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    More bad US economic news ahead

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    April 14, 2008 - 7:47AM
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    Retail sales in the US probably stagnated in March and residential construction dropped, demonstrating the biggest housing bust in a generation is hurting consumers, economists said before reports this week.

    Sales were unchanged after dropping 0.6% in February, according to the median estimate of economists surveyed by Bloomberg News ahead of a Commerce Department report on Monday. Builders broke ground on 5.2% fewer houses last month, a report April 16 is forecast to show.

    Consumer spending is waning as fuel prices rise, property values fall and unemployment climbs. Other reports this week, showing that inflation accelerated in March, will not prevent the Federal Reserve from lowering the benchmark interest rate this month for a seventh time since the subprime crisis intensified.

    ''The consumer is having to deal with a very wicked combination of slowing income growth and higher gas and food prices,'' said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. ''We're not looking for any improvement in housing this year.''

    Excluding auto dealers, retail sales are forecast to rise 0.1%, reflecting a gain in receipts at service stations as gasoline prices jumped. The figures aren't adjusted for inflation, so price increases would make the data look stronger.

    The report is expected to show Americans are buying fewer big-ticket items like cars and refrigerators as confidence drops and companies cut staff.

    Consumer sentiment slumped to a 26-year low this month, according to a preliminary report from Reuters/University of Michigan issued last week. The index of expectations for the next six months, a leading indicator of spending, dropped to the lowest level since November 1990.

    Cars and light trucks sold at an average 15.2 million annual pace in the first three months of the year, the fewest since the third quarter of 1998. Auto sales will fall to 14.9 million this year, the lowest since 1995, Standard & Poor's forecast last week.

    Purchases of less-expensive items, such as clothing, are also faltering. Sales at chain stores open at least a year fell 0.5% in March, the biggest decline since April 2007, the International Council of Shopping Centers said last week.

    J.C. Penney Co. Chief Executive Officer Myron Ullman said last week he's not looking for a quick end to the US economic slump.

    ''I don't think we're very optimistic about it ending anytime soon,'' Ullman told reporters at the World Retail Congress in Barcelona. He reiterated that J.C. Penney plans to open 36 stores this year, down from an original plan of 50.

    Housing starts, also from the Commerce Department, dropped to a 1.01 million annual pace from 1.065 million in February, according to the median forecast. Homebuilding reached a 16-year low of 1 million units in December.

    M/I Homes Inc., a Columbus, Ohio-based builder of houses in the US Midwest, Florida and the Mid-Atlantic states, said on April 10 that new contracts were down 40% from a year earlier and 23% of customers who agreed to buy properties canceled orders.

    ''Selling conditions in most of our markets remain difficult,'' Chief Executive Officer Robert Schottenstein said in a statement.

    Companies and consumers are getting squeezed by rising costs for fuel and raw materials, reports from the Labor Department may show. Wholesale prices rose 0.6% in March after a 0.3% increase the prior month, according to the survey median ahead of an April 15 report.

    The next day, figures from Labor may show consumers paid 0.3% more last month for goods and services after prices were unchanged in February, economists said.

    Increases in the cost of living will probably cause consumers to rein in spending, indicating they represent a challenge for economic growth rather than inflation.

    ''Inflation is more of a concern in terms of what it means for the consumer than for monetary policy,'' Wachovia's Vitner said.

    While there's a risk businesses may try to recover higher expenses by raising prices, the slowdown in demand means it will be difficult for companies to make the increases stick.

    Investors are betting Fed officials will lower the benchmark rate by at least a quarter percentage point later this month. Policy makers have reduced the rate by 2 percentage points so far this year, the fastest drop in borrowing costs in two decades.

    ''Some contraction in economic activity in first half of 2008 now appeared likely,'' the minutes of the Fed's March 18 meeting said.

    ''Most participants still expected inflation to moderate later this year and in 2009,'' the minutes showed. Officials also noted that ''significant uncertainty attended the near-term outlook for price pressures.''

    Other reports this week are forecast to show manufacturing is contracting.

    Industrial production dropped 0.1% in March after falling 0.5% the prior month, economists project an April 16 Fed report will show. Regional gauges from the New York and Philadelphia Fed Banks will probably show manufacturing in those areas shrank again this month.
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